
§ Leverage and the Equity Cost of Capital
§ MM I states that
E + D = U = A
Where E and D are the market value of equity and debt, U is the
market value of equity is the firm is unlevered, and A the market
value of the firm’s assets
§ That is, the total MV of the firm’s securities is equal to the MV of its
assets, whether the firm is levered or unlevered